When most people think of real estate investing, they think of buying a property on their own and making money off leasing or renting it to other people. However, there is an alternative way of looking at real estate that is much bigger than traditional real estate investing- this bigger picture in real estate is called real estate syndication or passive investor real estate, and it’s an excellent option for people looking to make a big real estate investment with a limited amount of responsibility.*
So, how does real estate syndication actually work? In real estate syndication, many owners get together and pool their resources in order to purchase real estate. This property is usually much larger or bigger than any one investor would purchase on his or her own. There are many benefits of real estate syndication, and its rewards are clear as more and more investors opt for this crowdfunding method of real estate investing
1. Lower Financial Risk
Most Syndication are set up with a general partner and passive partners. The management risk in the investment, thus, is with the general, however the general partner gets to use collective sum other people’s money for the investment. The passive investor only invested a limited amount, and their greatest risk is losing their original investment.
2. Greater Knowledge
Like the saying goes – two heads are better than one. And, in the case of real estate syndication, real estate investors get to take advantage of the fact that they can rely on the knowledge of a group of investors, and not just the knowledge of one. Owners in real estate syndicates are often able to take advantage of the expertise of people who come from a wide-range of backgrounds, which means they can make smarter decisions with financing and managing the property.
3. More capital Upfront
With more investors, there is more capital or money available upfront, since there are many accredited investors involved. This means that a bigger payment can be put down on properties from the beginning, yielding lower monthly payments, as well as more available money for rehab, upgrades, and maintenance.
4. Less Involvement
Because a real estate syndication consists of a real estate limited partnership, it’s a great choice for passive investors who are interested in putting money into real estate and making money out of real estate, who would also like to avoid daily real estate management issues. First, it’s important to understand what a limited partnership is: a business entity in which the limited partners plays a limited role in the organization’s operations, and have limited liability when confronted with losses. A real estate limited partnership (RELP) is normally comprised of a general partner, usually a seasoned property manager or real estate development firm, and outside investors whose role, of course, is to provide financing, and as limited partners, to receive a share of ownership as limited partners. Real estate syndicates allow passive investors to reap the financial rewards of owning a property without having to deal with the day-to-day hassles of owning a property, like tenants, maintenance issues, or upkeep.
* Please note: it is always prudent to consult your CPA about issues of tax liability and your legal advisor for any real estate venture.